When you are seeking help with your finances, loans can provide short-term solutions. However, not all loans are created equally. It’s important to review some of the riskier loans that you should stay away from.
Interest-Only Adjustable-Rate Mortgage
Particularly when you’re in the market for a home, you will want to understand interest-only mortgages. While it sounds great at first, it’s important to remember that you’re only paying the interest. This is for a short period of time. At some point, when the introductory period is over, the monthly payment will skyrocket in order to account for the principle that you have to pay towards. Further, an adjustable-rate mortgage can fluctuate dramatically from year to year based on current rates.
Payday Loans
Payday loans have incredibly high interest rates, and a very short payment timeframe. You might fall into a cycle of deeper debt if you cannot pay the loan back in the timeframe. The loan is based on the idea that you’ll borrow against your upcoming paycheck. When payday comes around, you pay the loan back in full. However, if your check is less than you anticipated, it creates financial problems. Plus, you have to pay the interest rates, too, which eats into how much you’re actually getting from your paycheck.
Title Loans
Title loans are short-term loans that are dependent on you owning your vehicle. You don’t have to have good credit because you are using the title of your vehicle as collateral. There are a number of car title loan risks to be aware of. The interest rates are very high, with APRs as high as 1,000 percent. Further, if you cannot make the agreed-upon payments, you run the risk of losing your vehicle. The only time you should consider these is if you know you’re able to pay the loan back quickly based on other money coming in.
Credit Card Cash Advance
If you have a credit card, you may get offers in the mail to take a cash advance. This may sound like a great idea because it’s cash in your hand. However, the interest rate is higher than your standard credit card rate. It should be considered a last resort option because of how much you’ll end up paying for that cash.
There are a lot of risky loans out there that prey on people who don’t know just how risky they are. Before you commit to any kind of loan, do your research to find out what it will cost you to borrow the money.